Bendigo eyes plan B

Bendigo Mining is in talks with a major investment bank with an eye toward arranging a back up financing plan in case South African-based Harmony Gold (HMY-N) fails to exercise its options on 360 million shares in the Australian gold miner.

Harmony’s option are priced at A30 apiece, which represents a 28% premium over Bendigo’s closing price of A23.5 per share in Australia on Nov. 6. Harmony has until year-end to decide the fate of its options.

Bendigo Mining CEO Douglas Buerger says that even if Harmony doesn’t exercise its options, that doesn’t erode the company’s support of the New Bendigo project.

Harmony originally acquired a 31.7% stake in the project, injecting some A$50 million into Bendigo two years ago. If it exercises the existing options Harmony would own 51%, and A$108 million would flow into Bendigo’s coffers.

Plans at New Bendigo, situated beneath the town of the same name, about 150 km northwest of Melbourne, call for the completion of a feasibility study by the end of January. A decision on whether to tackle the year-long construction of a mine will follow shortly thereafter. Both deadlines fall after Harmony do-or-die decision regarding its options. All permits are expected to be in place by June.

Failing financial backing from Harmony, Bendigo figures it’s A$9.5 million in cash on hand should be good enough to carry the project well into 2004.

Capital costs for the first stage of production (90,000-100,000 oz. annually over the first two years) are pegged at A$50-60 million (up from a previous estimate of A$40-50 million). Part of that capital includes infrastructure that will enable a future expansion to 400,000 oz. per year. The price tag is expected to be better pinned down by the ongoing feasibility study.

At last report, New Bendigo was home to a probable reserves in the Upper S3, D3 and Christine No. 2 reefs (or anticlines) totalling 438,500 tonnes grading 7.5-9.5 grams gold per tonne (with a best estimate of 8.5 grams), equivalent to about 120,400 contained ounces.

The company plans to define reserves enough for two years of production, or about 200,000 oz. of gold, by the end of the year. That’s a far cry from the 12 million oz. "resource potential" the company boasts.

At full steam, the company plans to have five years’ worth of reserves and resource delineated at any given time, as the geographic distribution of the ounces all but dictates that kind of approach.

Bendigo also says that it has improved its reserve estimation skills at the notoriously nuggety project with the introduction of a geostatistical interpretation scheme that analyses fan-drill results to provide grade estimates in 2 cubic metres chunks. With the new method, the company will now be able to report average grades to the nearest half-gram of gold per ton, rather than the range of grades previously reported.

Gold mineralization at Bendigo is found in reefs with a small cross-sectional area striking for up to 5 km. The long axis of the reef runs parallel to the hinge of its host anticline. The reefs commonly occur in clusters to form distinct linear bands, or ribbons, which repeat at depth along subsequent anticlinal hinges.The most productive part of the field is an area measuring 17 by 4 km and which contains 15 anticlines.